Question

Condensed statement of financial position and income statement data for Elkhardt Ltd. are shown below:

ELKHARDT LTD. Statement of Financial Position December 31 (in thousands)
		2018		2017		2016
Assets
Current assets
Cash		$29		$79		$199
Accounts receivable		898		706		502
Inventory		1,198		798		498
Total current assets		2,125		1,583		1,199
Property, plant, and equipment (net)		4,124		3,777		3,168
Total assets		$6,249		$5,360		$4,367
Liabilities and Shareholders’ Equity
Liabilities
Current liabilities		$600		$547		$502
Non-current liabilities		3,044		2,307		1,505
Total liabilities		3,644		2,854		2,007
Shareholders’ equity
Common shares		995		995		995
Retained earnings		1,610		1,511		1,365
Total shareholders’ equity		2,605		2,506		2,360
Total liabilities and shareholders’ equity		$6,249		$5,360		$4,367

ELKHARDT LTD. Income Statement Year Ended December 31 (in thousands)
		2018		2017		2016
Sales (all on credit)		$4,473		$4,009		$3,602
Cost of goods sold		2,503		2,113		1,812
Gross profit		1,970		1,896		1,790
Operating expenses		1,436		1,475		1,498
Income from operations		534		421		292
Interest expense		191		129		70
Income before income tax		343		292		222
Income tax expense		86		73		56
Net income		$257		$219		$166

Fill in the blanks below:

(a1) – Your answer is partially correct. Calculate the receivables turnover ratio, inventory turnover ratio, and current ratio for all three years. Assume that the accounts receivable and inventory balances at the end of 2015 were equal to the balances at the end of 2016. The company does not have an allowance for doubtful accounts and all sales are on credit. (Round answers to 1 decimal place, e.g. 5.2%.) 2016 2017 2018 7.2 Receivables turnover 6.1 times times 4.85 times 3.6 Inventory turnover times times 3.3 2.7 times Current ratio e Textbook and Media Attempts: 5 of 10 used Save for Later Submit Answer

Answer 1

1. Calculate receivables turnover ratio, inventory turnover ratio, curent ratio

	2016	2017	2018
Receivables turnover ratio	7.2 times	6.6 times	5.6 times
Inventory turnover ratio	3.6 times	3.3 times	2.5 times
Current ratio	2.4 : 1	2.9 : 1	3.5 : 1

Receivable turnover ratio = Net credit annual sales / Average accounts receivable ( $ in thousands)

Particulars	2016	2017	2018
Opening balance (A)	$502	$502	$706
Closing balance (B)	$502	$706	$898
1. Average balance (A+B)/2	$502	$604	$802
2. Net credit sales	$3602	$4009	$4473
Accounts receivable ratio (2/1)	7.2 times	6.6 times	5.6 times

Inventory turnover ratio = Cost of goods sold / Average inventory ($ in thousands)

	2016	2017	2018
Opening Inventory (a)	$498	$498	$798
Closing inventory (b)	$498	$798	$1198
1. Average Inventory(a+b)/2	$498	$648	$998
2. Cost of goods sold	$1812	$2113	$2503
Inventory turnover ratio (2/1)	3.6 times	3.3 times	2.5 times

Current ratio = Current assets / current liabilities ($ in thousands)

	2016	2017	2018
Current assets (a)	$1199	$1583	$2125
Current liabilities (b)	$502	$547	$600
Current ratio ( a/b)	2.4 : 1	2.9 : 1	3.5 : 1

Calculate Gross profit margin ($ in thousands)

	2016	2017	2018
Gross profit (a)	$1790	$1896	$1970
Sales (b)	$3602	$4009	$4473
Gross profit margin (a/b)	49.7%	47.3%	44%

Calculate Profit margin ratio ($ in thousands)

	2016	2017	2018
Operating profit (a)	$292	$421	$534
Net profit (b)	$166	$219	$257
Sales (c)	$3602	$4009	$4473
Operating profit margin (a/c)	8.1%	10.5%	11.9%
Net Profit margin (b/c)	4.6%	5.5%	5.7%

Calculate debt to total assets and times interest earned ratio ($ in thousands)

	2016	2017	2018
Total liabilities (a)	$2007	$2854	$3644
Total assets (b)	$4367	$5360	$6249
Debt to total assets ratio (a/b)	46%	53.2%	58.3%
Income from operations (1)	$292	$421	$534
Interest expense (2)	$70	$129	$191
Times interest earned (1/2)	4.2 times	3.3 times	2.8 times

Calculation of cash dividends declared and dividend payout ratio ($ in thousands)

	2016	2017	2018
Retained earnings in beginning	$ 1200	$ 1365	$1511
Retained earnings at the end	$1365	$1511	$1610
Diff. in retained earnings (1)	$165	$146	$99
Net profit during the year (2)	$166	$219	$257
Dividend declared (2 - 1)	$ 1	$ 73	$ 158

	2016	2017	2018
Total dividends (1)	$ 1	$ 73	$ 158
Net profit (2)	$ 166	$ 219	$ 257
Dividend payout ratio (1/2)	0.6%	33.3%	61.5%

Calculation of asset turnover ratio and return on assets ($ in thousands)  

	2016	2017	2018
1. Net sales	$3602	$4009	$4473
Total assets in the beginning	$4367	$4367	$5360
Total assets at the end	$4367	$5360	$6249
2. Average of total assets	$4367	$4864	$5805
Assets turnover ratio (1/2)	0.8 times	0.8 times	0.8 times

	2016	2017	2018
Net income (a)	$166	$219	$257
Average total assets (b)	$4367	$4864	$5805
Return on assets (a/b)	3.8%	4.5%	4.4%

Calculation of return on common shareholders equity

	2016	2017	2018
Net income (a)	$166	$219	$257
Shareholders equity (b)	$2360	$2506	$2605
Return on equity (a/b)	7%	8.7%	9.9%